It’s not news that the traditional futures trading pit is going the way of the dinosaur, but CME Group announced on Wednesday that it is accelerating that process.
The parent company of the Chicago Board of Trade and other exchanges is ending most trading involving people on the floor who establish prices by flashing hand signals and shouting at each other.
CME Group said Wednesday it that it will close most of its futures trading pits in Chicago and New York by July 2.The decision ousts traders of products ranging from grain and livestock in Chicago to gold and oil in New York. Once the only way to buy or sell a futures contract to hedge against price moves, open-outcry trading is now only 1 percent of total futures trading volume, according to the exchange operator. The closures will mark the end of an era for the futures industry, which built itself around the pits in Chicago.
Open-outcry volumes fell to less than 9 percent of total volume by 2007 and less than 2 percent by 2011, according to CME data.
CME’s futures pits roared back to life in April 2014 when the company suffered a rare electronic trading outage in its grain markets. A Reuters analysis showed floor traders largely succeeded in replacing the machines in at least some markets, despite the difficulties of suddenly using floor trading skills that have mostly died out.
With the futures pits set to close, some brokers worry the markets will no longer have a backup.
Leo Melamed, CME chairman emeritus, said it was futures customers who decided to shift their business to electronic trading from the floors.
?The floor had no viability anymore,” he said.
As recently as 2013, CME said it counted pit-based trading services as a profitable part of its business. At the time, the exchange operator denied it wanted to shut its open-outcry grain pits after a group of veteran traders unsuccessfully sued to stop a rule change they said would put them out of business.
CME will keep open its S&P 500 futures pit because it “continues to provide an important venue for trading” the underlying contract for the open-outcry S&P 500 options, according to the company.
Options pits, which have stayed active in the face of electronic trading, will mostly remain open in both cities.
On Thursday, CME Group reported revenues of $841 million and operating income of $472 million for the fourth quarter of 2014. Net income attributable to CME Group was $306 million and diluted earnings per share were $0.91. Excluding the items noted in the reconciliation, adjusted earnings per share would have been $0.95.
Read more on Reuters, the Chicago Tribune, and Barron’s.